"Rich" and "Poor" in Germany – Family Policy Could Achieve More

Despite the use of numerous instruments of public income redistribution, income and poverty risk in Germany depend greatly on the type of household concerned, and whether or not there are children in a household. A study carried out by the Centre for European Economic Research (ZEW) on behalf of the Family Policy Commission of the Heinrich Böll Foundation shows that, on average, households with children do not manage to gain a total income, through state benefits, paid employment and other sources of revenue, which fully covers the extra needs associated with the presence of children. This is particularly the case for single parents. If weighted according to need, the disposable income per capita of unemployed single-parent households is only 45 per cent of the disposable income of childless couples.

Until now, little has been known about the distribution effect of benefits for married couples and families. Various forms of tax relief were analysed as part of the study. These included income splitting, childcare subsidies and monetary transfers, such as child and parent benefits. Without these tax and transfer benefits, the poverty risk in Germany would be 18.3 rather than 15.2 per cent. For child poverty, the figures would be even higher: 33.8 instead of 18.3 per cent. Family policy therefore makes a considerable contribution to lowering the risk of poverty.

"Wealthy families tend to receive more benefits"

"If there was a stronger focus on poorer families, the poverty risk might even be lowered further. The current approach spreads benefits extremely widely, to the point even that wealthy families tend to receive more benefits," says Dr. Holger Stichnoth, author of the study and deputy head of the ZEW Research Group "International Distribution and Redistribution". While 13 per cent of all state expenditure analysed in this study goes to the richest 10 per cent of households, the proportion allocated to the poorest 10 per cent is no more than seven per cent. The greater funding of wealthier families is first and foremost down to tax benefits (income splitting, child allowance), which increase in proportion to taxable income.

Tax benefits are therefore generally a less effective measure for lowering poverty risk. In view of this, converting tax relief for single-parents into a (greater) tax benefit should be viewed with some scepticism. As the study shows, expenditure of the same amount could also cover an increase of 100 euros in the child benefit exclusively given to single parents. This would be significantly more effective in reducing the poverty risk of children in single-parent families (by four percentage points, resulting in a value of 41 per cent).

Advantages of income splitting vary depending on income

Couples in which only one partner is employed receive special funding in Germany. The marriage and family-dependent benefits received by such couples amount, on average, to 100 euros for childless couples, and 608 euros for couples with children. This exceeds the benefits received by unemployed couples. If both partners work, the average amount drops to 70 or 508 euros per month. This transfer drop is the result of the higher income and the splitting advantage that increases in proportion to the difference between the two partners' taxable income.

This ZEW study is based on the survey year 2013 of the Socio-Economic Panel (SOEP). As SOEP gathers the majority of its data retrospectively for the past year, however, the evaluations apply to the year 2012.

For more information please contact

Dr. Holger Stichnoth, Phone +49(0)621-1235-362, E-Mail stichnoth@zew.de